Almost all startups are using artificial intelligence in their operations, but those developing their own AI need to do more to set themselves apart if they want to draw the attention of investors, a local business leader says.
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Almost all startups are using artificial intelligence in their operations, but those developing their own AI need to do more to set themselves apart if they want to draw the attention of investors, a local business leader says.
Suzanne Grant, executive director of the Capital Angel Network, told OBJ that in the years since the technology went mainstream, AI use has become ubiquitous in the startup space.
“Almost everybody is using AI tools within their operations,” said Grant. “So it doesn’t necessarily make somebody more or less investable. It’s just there. Think about when people moved to using software. At some point, (it became the norm).”
For the average startup, she said, AI presents a host of advantages, such as providing tools to boost product functionality, help companies better manage their resources and make workers more productive. It isn’t surprising, she said, that its use has exploded among efficiency-minded founders.
Its popularity also means investors are necessarily taking AI use into consideration when evaluating most startups.
“If you’re an AI company, it’s different than if you’re not an AI company,” said Grant. “Almost everybody’s using it, so it’s not a differentiator. We’re not really looking for that, per se. It can be good, but also, there’s some challenges.”
For example, security and data privacy are top of mind, especially for companies using third-party tools.
For companies developing AI, the challenge of attracting investor attention is different, especially amid a sea of other contenders.
Grant said the difficulties those startups face are similar to the challenges that SaaS companies have long experienced.
“What is that thing in your toolkit that’s going to help you maintain your market position at scale, so somebody can’t come in and copy you, and just easily knock you out,” she said. “Some people would have their own algorithms, that they would call trade secrets, or you’ve got some companies that have a suite of patents. Investors like that.”
At the same time, AI’s perceived advantages can sometimes be roadblocks to success, she explained.
“You need some kind of moat. AI is making it easier for startups to figure things out, but who’s behind them that could figure it out just as easily?” said Grant. “The differentiator is sometimes disappearing. It needs to be top of mind for founders, to have a very clear differentiator where they can hold their share of the market. Sometimes it’s expertise, getting to the market first, execution – these can be tricky to anticipate in advance.”
She added that it's new territory for investors, but the AI companies that stand out most are those that develop tools with industry-specific solutions in mind.
“We’re seeing, when you combine AI with deep science, for example, what an incredible advantage,” she said. “If your AI is for deep science or deep tech solutions, that’s not copyable.”
Startups doing more with less through AI
In the startup world, AI has quickly become the norm, according to Nick Quain, vice-president of venture development at Invest Ottawa, as VCs look for founders who are capable of doing more with less.
“If you’re not using the tools that are out there, you’re not seen as being as efficient,” he said. “With change happening so quickly, and AI tools being used, if you’re not demonstrating that you’re on the forefront as an early adopter, and if you’re perceived more as a laggard doing it the way others did it five years ago, that would be a negative.”
In addition to helping startups streamline their operations, AI helps them cut costs, Quain noted.
On the HR side, he said low-code and no-code tools reduce the need for technically skilled teams or even a technical co-founder. Quain said startups are now able to develop “decent initial prototypes” to get the business off the ground and gain some traction.
It works the other way, too, for technically minded founders who lack business savvy.
“If you’ve got a skills gap, (AI) is like having your own expert,” said Quain. “If you don’t understand go-to-market, you can ask it: this is my (ideal customer profile), this is what I’m selling. What suggestions do you have? And it’s pretty freaking good.”Tools like AI have been central to the success of solo-founder and bootstrapped businesses, which Quain said are increasingly common.
“They don’t need to raise money in the short term,” he said. “They can take it from A to B, get their revenue, get it off the ground, and validate without having to go to an angel, or even friends or family for that matter. You have this abundance of resources that weren’t there before.”
The lessened need for labour poses challenges for job-seekers, especially in tech, Quain said. But the abundance of workers is a positive for startups that otherwise wouldn’t have the cash to compete against large public companies for skilled talent.
There has also been a new, unexpected issue in the hiring process cropping up because of AI, Quain added.
“Almost all candidates are using AI to write resumes and cross-reference to the job description,” he said. “Then startups will get 100 applications and use AI to read them. Now you’ve got AI talking to AI. How do startups, with already limited resources, go through those 100 resumes that now all of a sudden look the same?”
